Emissions Trading Scheme in Taiwan and International Linkage

Emissions Trading Scheme in Taiwan and International Linkage

Dr. Hui-Chen ChienDeputy Director-General

Department of Air Quality Protection and Noise Control

Environmental Protection Administration

13 October 2010

EU-Taiwan Climate Change Forum

OutlineOutline

1. Existing and Emerging ETS Worldwide

2. Legal Foundation in Taiwan

3. Taiwan’s Emissions Trading Scheme

4. International Linkage

5. Concluding Remarks

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Existing and Emerging ETS WorldwideExisting and Emerging ETS Worldwide

Taiwan ETSsimilar in size to RGGI

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Elements for ETS LinkageElements for ETS Linkage

• Cap (absolute vs. intensity-based, stringency of cap)

• Coverage (sectors and GHGs)

• Allocation rules (free vs. auction)

• MRV standards (methods for monitoring, reporting, verification)

• Offsets (eligibility of Kyoto and non-Kyoto units)

• Cost containment (offsets, borrowing, price cap, etc.)

• Registry system (inter-registry linkage, technical issues)

• Trading platform (trading of various units, liquidity)

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1

Complementary Measures of Taiwan ETS Complementary Measures of Taiwan ETS • MRV Mechanism: assures that all sectors follow international

MRV requirements when reducing their GHG emissions or generating offset credits.

• National Registry: serves as the national GHG emissions database, and provides a transparent management system for emitters.

• Offset Project Management System: managing early action that the government has been promoting over the past years, and issues offset credits following MRV requirements.

• Carbon Credit Management and ETS: establishing a system which is capable of linking with international markets, offers participants a fair and open trading environment.

• Foreign Offset Credit Transfer Mechanism: provides a strict reviewing process to ensure the credibility and cancellation of foreign offset credits, in order to avoid reselling.

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1

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Government adopted emission reduction targets with the National Energy Conservation and Carbon Reduction Program Returning to 2005 level by 2020Returning to 2000 level by 2025

Taiwan’s Voluntary Reduction TargetTaiwan’s Voluntary Reduction Target

4672009 BAU(GDP High Growth Scenario)

M T

onn

es C

O2

2000 2005 2010 2015 2020200

250

300

350

400

450

500

257

391

341

375

338

370

305

257269265257

243

Return to 2005 level in 2020

Energy intensity -2%/yrLNGRenewables

Nuclear

Taipower offsets

Afforestation

Shortfall(~48 mt)

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GHG reduction goal in Taiwan – Return to 2005 level in 2020, it means 45% BAU decreasing percentage in 2020.

This BAU reduction percentage is far more than those comparative countries as Taiwan (Korea declines 30% GHG emission of BAU , Singapore declines 16% GHG emission of BAU); and IPCC suggested developing countries shall set a goal as decreasing 15-30% GHG emission of BAU in 2020.

Note: GHG emissions are mainly combusted fuel CO2 in Taiwan (90%), Other Non-CO2 emissions declined in recent year.

Our GHG Reduction Goal

Low Growth Scenario Medium Growth Scenario High Growth Scenario

M Tonnes M Tonnes M Tonnes

Growth

emissions

ReductionReductionReduction Sorts of Contribution

Sorts of Contribution

Sorts of Contribution

Oversea Credits

Reduction Gap

(1) Nation Reduction (including yearly 2% energy density decline)

BAU reduction contribution compared to 2020

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Establishing a Legal Foundation for GHG Reduction in Taiwan

Establishing a Legal Foundation for GHG Reduction in Taiwan

• In order to achieve the target, “Green Policies” will be the important legal foundation for “Energy Saving and Carbon Reduction” :– Energy Management Act and Renewable Energy

Development Act have already been passed in the Legislative Yuan in 2009.

– The above-mentioned bills are complementary to Greenhouse Gas Reduction Bill and Energy Tax Bill, waiting to be reviewed and promoted the Legislative Yuan and Executive Yuan.

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2

Taiwan Emissions Trading Scheme (ETS)Taiwan Emissions Trading Scheme (ETS)

• The design of the Taiwan ETS is according to the spirit of low-cost and cost effectiveness in the GHG Reduction Bill, currently being reviewed by the Legislative Yuan. Taiwan ETS is a market-based approach used to reduce the emissions by providing economic incentives. The scheme also works to develop industries capacity-building.

• MRV Mechanism:

The design of the Taiwan ETS not only follows the international MRV requirements, but UNFCCC/CDM mechanism as well, using similar standards for verifying project-based reduction.

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3

GHG Reduction Strategies by StagesGHG Reduction Strategies by Stages

Stage I Stage II Stage III

Cap-and-Trade, Offsets

Performance standards, Offsets

Voluntary Reporting,Early action,EIA offset

Mandatory inventory and reporting

Before the Act

Designated sources to be promulgated by EPA

Designated sourcesand new entrants, account management system

Voluntary、early action and capacity building

National target, distribute to industry authorities, allocate to designated sources, auction

Offset Performance Standard

Offset Emission Credit (Cap-and-Trade)

Carbon Neutral/Carbon FootprintEIA

From Voluntary to MandatoryFrom Voluntary to Mandatory

From Inventory to ReductionFrom Inventory to Reduction

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3

Performance standards/

Offset tradingCap and Trade

Voluntary inventory/reduction

International offsets

Offset trading

Inventory reporting

Performance Stds

Performance standards

Allocation

Auction

GHG Reduction Act ImplementationGHG Reduction Act Implementation

Early action/offset projects

Pilot offset trading

Stage I Stage II Stage IIIBefore GHG Act

Emission Permits

Allowances

Perform std offsets

Mandatory inventory/Voluntary reduction

Inventory reporting

Inventory reporting

Inventory reporting

Verification system Verification systemVerification systemVerification system

Early action/offset projects

Cap and trade

Early action/offset

International offsets

International offsets

Perform std offsets

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Current Participants of the Taiwan ETSCurrent Participants of the Taiwan ETS• Under the Environmental Impact Assessment (EIA) Act,

facilities that are required to offset their emissions will be the potential participants of the Taiwan ETS. Other facilities are not included in the scheme, but voluntary buyers are welcomed.

– EIA commitment: Companies have committed to offset the increased emissions by purchasing carbon credits.

– Voluntary buyers (e.g., Carbon Disclosure and Carbon Neutral): In order to strengthen international competitiveness, companies in Taiwan are participating the Carbon Disclosure Project and considering making their company carbon neutral to promote green business image.

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Recent ProgressRecent Progress

• Since the GHG Reduction Bill is still being reviewed by the Legislative Yuan, the following guiding principles were set using Executive Regulations:

– 6 November 2009: “EPA Operational Principles for GHG Verification Bodies” - establish third-party verification system

– 10 September 2010: “EPA Management Principles for GHG Emissions Inventory and Registration” – establish MRV system

– 10 September 2010: “EPA Promotion Principles for Early Action and Offset Projects” – establish emission credit MRV system

– Emission credits management and trading system: under development

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• EIA Offsets• Performance Standards• Cap and Trade

Designated Sources

Emissions Intensity

ISO14064-1

Reduction Project

MethodologyISO14064-2

Organization-based reduction credits Offsets Project-based

reduction credits

Early Action Offset Projects

Early Action Crediting ProgramEarly Action Crediting Program

May choose either one but NOT both

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3

• Crediting starting from 1 January 2000

• Intensity-based standards

– e.g., emissions/unit production

– To be set in consultation with industry authorities

• Target: designated emission sources before the performance standards (GHG Reduction Act)

Early Action CreditingEarly Action Crediting

Emission Reductions = (Intensity Standard – Calculated intensity) x Activity (e.g., production units)

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3

• CDM methodology or those approved by the central competent authority (EPA)

• Additionality test

• Nuclear power excluded

• Crediting starting date: – No earlier than EPA registration date (except for those that have been validated

before rules set)

• Crediting period:– Forestry: 30 years fixed, or 20 years with 2 renewals

– Others: 10 years fixed, or 7 years with 2 renewals

Offset CreditingOffset Crediting

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3

Emission Credits Management SystemEmission Credits Management System

SectorAllocation

Emission SourcesInventories

NationalInventory

VerificationBodies

(international)

InternationalOffsets(CDM)

InternationalOffsets(CDM)

Trading Platform

Domestic(Early action

offsets)

Domestic(Early action

offsets)

National Registry

Emission Credits

Platform

Project Proponents

EPA

AccreditationEntity

EPA Completed

Under development

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3

Pilot Emissions Trading PlansPilot Emissions Trading Plans• Emissions trading platform consist of “registry”, “trading”, and

“clearing” systems• Trading platform is an electronic database that provides credits

registration and transfer by participants, and linkage to national registry

• Trading account functions managed by the trading system.

Clearing system

Trading system

Registry system

Emission Credits Management

SystemElectronicoperations

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Validation/Verification

Early Action / OffsetProgram

Domestic Reduction Project

Acquire Credit

Central GHG Registry

Off

set

EP

A A

ppro

val

International Offset

Before CAP

After CAP

EIA

PerformanceStandard

Permit

Allowance

CERs

Others approved by the UNFCCC

Reduction Credit Source and ApplicationReduction Credit Source and Application3

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IndustryEnergy Transport Resident/Commercial

Economy-wide Target

Allocation

ETS Sector coverage

SourceA

SourceB

SourceC

SourceD

Acct.A

Acct. B

Acct.C

AcctD

Central Registry

Govt.Approval

Acct.A

Acct.B

Acct.C

Acct.D

Others?

Clearing

Domestic Trading Platform

Early action,Domestic offset

International Offsets 35-50%(CERs, etc.)

Other policy instruments

Preliminary ETS Scheme Design

Carbon Price Signal

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Implications of Taiwan Entities for Getting CERs Implications of Taiwan Entities for Getting CERs

To assist emitters to use available resources in the most cost-effective manner to meet their responsibility under our government’s voluntary GHG reduction program, or provide credits to new emission sources for meeting their reduction commitment from the environmental impact assessment.

For those emission sources implementing domestic reduction and offset as a priority but would still need to meet their voluntary reduction responsibility through foreign carbon offset projects, the government would assist them acquire offset credits from the CDM in order to gain international credibility, while assuring the effectiveness of their foreign investment.

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3

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International Offset Credits AcquisitionInternational Offset Credits Acquisition

Set up foreign entity and Annex-I account

Entity participates in CDM projects in non-Annex I countries

Transfer CERs to foreign account

CERs from primary, secondary markets

CERs cancellation for domestic offset (EIA, cap)

Annex I country issues LoA

Account Administrator (EPA Registry)

Issue domestic credits

Establish Foreign Account

Develop CDMProjects

CERs Management

Indirect Transfer to Taiwan

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• Advantages of International Linkage– Reduce the aggregate cost of the linked systems’

collective emissions target– By broadening markets for allowances and credits,

linking increases liquidity and improves the functioning of those markets

– High cost of reduction in Taiwan is one of the reasons to explore the possibilities of international linkage.

International LinkageInternational Linkage4

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Linkage with International Carbon MarketLinkage with International Carbon Market

e.g., EU Linking Directive

e.g., EU ETS, Norway, Switzerland, etc.

e.g., CDM, international offsets

Regional Carbon Market

Establishing a domestic ETS linking with Kyoto mechanisms has become the main measure for countries to reduce CO2 emission.

Taiwan is actively seeking an opportunity to participate in international carbon markets and build bilateral or multilateral corporations with developed countries and countries in Asia-Pacific region.

Taiwan ETS would inevitably linked with the international carbon markets

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Concluding RemarksConcluding Remarks• As a highly industrialized economy, Taiwan is building the

capacity for domestic mitigation, but our reduction cost is very high.

• We are aiming at measurable, verifiable, reportable (MRV) management for GHG reduction, and proceeding with legislation of the GHG Reduction Bill.

• Market mechanisms such as emission trading would allow us to join the global effort to reduce emissions in a cost-effective manner, through linkage with other offset and trading schemes.

• A clear carbon price signal would promote domestic reduction, moving us toward a low-carbon society.

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Thanks for your attention,

Comments please…

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